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Simon Pemberton, a materials chemist at Applied Devices, is escorted by security guards to the company parking lot, where an HR manager tells him he’s fired. Until that moment, things seemed to be going well. Simon had known, of course, about AD’s zero-tolerance program, but it hadn’t occurred to him that he’d violated it—particularly since his unauthorized e-mailing and Internet use were meant to serve the goal of scientific inquiry.

Don Hardee, the CEO, strongly believes that deviations from a defined standard of behavior shouldn’t be tolerated at AD. The dangers they pose to employees’ health, safety, and morale, not to mention the company’s productivity and reputation, are too great. Shirlee North, the head of HR, agrees. Ever since the jilted husband of an employee burst into AD’s lobby waving a pistol, workers have been clamoring for security, and the zero-tolerance policies provide that. Initially, the program covered only weapon and drug possession, but the list of offenses warranting termination has grown considerably.

When Shirlee’s second in command argues that such policies are unworkable and unjust, Shirlee points out that the company intervenes only when the action is clearly prohibited, the harm actual or imminent, and the evidence unambiguous. Are Don and Shirlee right to stand firm, or should Applied Devices modify its program?

Commenting on this fictional case study are Janet Parker, the senior vice president of human resources for AmSouth Bank; Eugene Volokh, a professor at UCLA School of Law; Jean Halloran, the senior vice president of human resources at Agilent Technologies; and Michael G. Cherkasky, the president and CEO of Marsh & McLennan.

“Mr. Pemberton?”

“Yes, that’s me,” Simon replied distractedly, his back turned.

The two burly gentlemen who had suddenly entered Simon’s work pod did not have to identify themselves; the tan uniforms of Applied Devices’ security detail would soon do that well enough.

“Come with us, please.” Within seconds Simon discovered he really had no choice, as the two guards, now standing behind his chair, each placed a hand under one of his elbows and swiftly brought him to his feet.

“What is going on here?” Simon cried, more than once. But the materials chemist was already being quickstepped out of his work area and down the long white corridor leading to the employee parking lot. Greeting Simon as the small group reached his car was someone he’d never laid eyes on before—a woman who introduced herself as Sallie Tillotson, an HR manager. The guards had radioed her that the target wasn’t putting up much resistance.

“Your personal belongings will be messengered to your home later today,” Sallie told Simon. “All work-related materials stay here. You will receive a letter from HR listing the policies you violated and the terms of your severance.”

The three waited for Simon to slip behind the wheel and start the engine of his green Focus hatchback before grimly nodding their good-byes under the beating sun.

As Simon would be reminded by registered mail the next day, unauthorized e-mailing and Internet use warranted termination at Applied Devices. A year earlier, the company had adopted a zero-tolerance program, which by this point covered a wide range of conduct. The letter would explain that every element of the policy could be found on AD’s intranet, constituting “constructive notification.”

Sudden unemployment was only one of Simon’s worries; he could also expect his work permit to be revoked, requiring him to return to England. How well his adjustment had seemed to be going until this happened, he thought as he drove home. Yes, some of his fears about living among Coloradans had been confirmed—their tendency to take his words literally when he was being ironic; his own tendency to experience as prying what proved to be their innocent curiosity about a foreigner’s background—but by and large, he had been touched by their friendliness and impressed by his colleagues’ work ethic.

Most of all, Simon had been grateful to AD’s chief scientist, Gottfried Harberg, for taking a chance on him. The Englishman had obtained his doctorate from the University of East Anglia in laser spectroscopy, which seemed to some people at Applied Devices to relate only tangentially to the technology on which Don Hardee, AD’s CEO, had pinned the company’s future: semiconductors for cell phones that could double as payment devices offering greater security than credit cards. But Gottfried saw value in Simon’s background, and Simon had won an enthusiastic recommendation from Gottfried’s acquaintance Martin Ledecky, then an assistant professor of chemistry at East Anglia. Martin had lost his bid for tenure and was now teaching at Amman University, in Jordan. Simon and Martin, who’d become good friends, remained in almost daily e-mail contact. Besides comparing impressions of their respective “desert kingdoms,” they helped each other with their overlapping investigations of silicon’s molecular properties.

Over the next several days, Simon thought back to their keystroked conversations and couldn’t quite remember whether he had asked AD’s Office of Internal Security to certify Martin as a correspondent on scientific matters. AD was understandably eager to prevent its trade secrets from reaching competitors. Simon knew he wasn’t guilty of allowing that. The scientific questions he raised with Martin were too fundamental to be product related, and Martin had no industry connections Simon was aware of other than Gottfried, who had left a research post in Tübingen, Germany, to join AD. Maybe, Simon thought, he’d been dismissed for spending time online researching the climb up the Matterhorn he’d been planning—the choice of routes, crampons and other gear, the weather, the local vegetation. He’d often remained in his cubicle into the evening—until the air-conditioning was shut off—to make up for workday and after-hours time spent on noncompany matters. Maybe AD wasn’t interested in that.

From Zero Prohibitions to a Dozen

Although most of his colleagues in R&D considered Applied Devices’ treatment of Simon harsh, the company’s zero-tolerance program enjoyed strong support among the staff overall, owing to an incident just before Simon’s arrival. A clearly disturbed middle-aged man had entered the lobby one afternoon waving a pistol and loudly demanding to see Doris Klemm, his wife, who worked in the cafeteria. The guard on duty was checking an emergency-exit door upstairs that someone had breached to gain access to the roof for a smoke. The frightened receptionist transmitted the man’s demands to the head of security, who summoned the city of Pueblo’s SWAT team, which 20 minutes later found the perpetrator sitting on the floor with his head between his knees, looking exhausted and contrite. The gun lying next to him turned out to be unloaded.

The story the police pieced together back at the station house was that Doris had told her husband the night before that she wanted a divorce and planned to take their three children with her. Although no one at AD had been hurt, everyone who worked there, naturally, was upset. Shortly thereafter, Shirlee North, the head of HR, started looking into how to avoid this sort of incident in the future. Doris’s husband was not an employee, but he could well have been. Soon Shirlee was examining other companies’ zero-tolerance policies. She discovered that they had strong executive support. With assistance from general counsel, she drafted such a policy for AD.

Initially, it covered only weapon and drug possession. But then, at the midyear all-staff meeting, a young woman stood up to say that if it hadn’t been for that smoker, security would have been on hand to tackle Doris’s husband the second he entered the lobby. Unmistakable murmurs of agreement throughout the auditorium quickly made clear to Shirlee and Don that illicit smokers should be added to the list of wrongdoers who would not be tolerated at Applied Devices. It came to seem wise to include anyone possessing alcohol or showing signs of intoxication on-site; misappropriating company property, regardless of value; incurring unauthorized expenses above $100; or engaging in unauthorized e-mailing and Internet use. Additions came every few months or so, and each was announced in a global e-mail.

The Quality of Mercy

Don, who had been CEO of Applied Devices for almost three years, was a Six Sigma master black belt, a churchgoing Southern Baptist, and, as it happened, a pretty good shot. It was on the strength of the job he’d done as AD’s vice president for manufacturing that Don had ascended to the company’s top position. When he became vice president, AD was suffering from a ratio of scrap to outputs that was 57% higher than the industry average. Cycle and delivery times had been slipping, machine parts were wearing out faster than supplier specifications had promised, and no one could figure out why there was so much variation in the amount of copper that went into AD’s microprocessors. Don hired some black belts and saw to the training of a couple of dozen green belts. Within 18 months, AD’s productivity growth rate tripled.

Emboldened by this triumph, Don decided, after he became CEO, to extend Six Sigma principles—under which there must be no more than a few defects per million opportunities—to finance and accounting. The collection rate shrank by 12 days within just a few months, the uncollected-receivables rate plummeted soon thereafter, and it now took only four days to close the account books following the end of a quarter. Since Don was thoroughly sold on Six Sigma, he extended that discipline to human resources as well. Although warned by Shirlee that not all HR processes were quite so susceptible to quantification, Don soon saw a sizable reduction in overpayments to employees on medical leave and in the time it took to fill vacant positions.

So when, in the aftermath of the pistol-waving incident, a clamor erupted in favor of a zero-tolerance policy forbidding weapons anywhere on campus, and Shirlee produced language that passed legal muster, Don was receptive. He believed that deviations from a defined standard of behavior shouldn’t be tolerated at Applied Devices. The dangers to employees’ health, safety, and morale—not to mention to the company’s productivity and reputation—were too great. When the conduct specified was so clearly harmful, and the line that must not be crossed so sharp, why shouldn’t employees who did cross it face summary dismissal?

Here was an idea inspired by Democratic senators Dianne Feinstein and Byron Dorgan, who had drafted the Gun-Free Schools Act and the Safe and Drug-Free Schools and Communities Act back in the mid-1990s—laws that now permitted Don’s neighbors’ kids in the Pueblo public schools to concentrate on their studies instead of facing the temptation of getting high or the worry they might get stabbed or shot. According to the Pueblo policy, students carrying weapons or any drug not medically authorized faced immediate expulsion. Ninth-grade math scores, Don had read in the newspaper, were climbing. Surely there was a connection.

One of Don’s neighbors had passed along an article by the late senator Daniel Patrick Moynihan, a former Harvard professor, entitled “Defining Deviancy Down.” Moynihan asserted that just as very law-abiding societies tended to treat minor crimes as grave infractions, societies that experienced far too much bad behavior often indulged it, explained it away, and eventually judged it harmless. Moynihan thought the late 1980s and early 1990s, with their high crime rates, had been one such society; might the increasing indifference of employees to company rules mean that Don was living in another?

That Sunday, as he did most Sundays, Don drove with his wife to Mt. Hebron Baptist, a red-brick Victorian church downtown, where the Reverend Steve McCracken delivered a sermon entitled “Lines Drawn in the Sand: Will the Lord’s Tears Wash Them Away?” Many of Don’s coreligionists in Pueblo were teetotalers, and some still frowned on dancing. But Don’s religion, though strict in its ways, also preached forgiveness when sinners acknowledged their lapses and repented. As CEO, however, Don thought his first duty was to the welfare of the institution he ran, not to the handful of errant souls within it.

Another Kind of Process?

Melissa Dresser was Shirlee North’s second in command. She had seen Simon’s dismissal coming and had fretted about it. Unauthorized Internet use was fundamentally different from, say, gun possession, which had to be stopped in its tracks or everyone would be in danger. Goofing off online was a substantial cumulative drain on the company’s productivity, in Don’s view; but Shirlee had advised him that the first instance of it that IT detected and referred to HR could not, realistically, serve as grounds for firing. So, working with a retired FBI agent who now ran a security consulting business in Pueblo, Shirlee had developed some protocols.

More than eight hours online per week, an amount that was 20% higher than the company average, identified an employee as suspect and precipitated spot monitoring of Web sites visited. If 25% or more were found to be clearly unrelated to the employee’s duties, then e-mail would be monitored, too. The protocol for that was, first, the auditing of all e-mails sent to employees of competitor companies and, second, the auditing of all e-mails with destinations carrying a foreign suffix, such as “de,” for Germany, or “nz,” for New Zealand. The consultant was particularly concerned about Simon’s frequent contact with a resident of a Middle Eastern country who was not on the approved list, and with their exchange of indecipherable equations. The combination of the two violations called into question Simon’s loyalty and dedication to the company, which the consultant and Shirlee deemed to be suitable grounds for firing.

As Shirlee was getting ready to leave the office one evening shortly after Simon’s expulsion, Melissa asked if she could stop for a quick chat.

“I’m sorry to hold you up, but I’m worried about where zero tolerance is leading us,” Melissa began. “You know I was completely behind the policy on guns. I felt we had to ignore the hunters on staff who groaned about the ban on rifles in the trunks of their cars. I also think it’s good that we don’t pay any attention to pill takers who don’t like showing us their drug prescriptions.”

Melissa paused, and her eyes lit up. “Hey, remember how upset Don’s wife was when airport security grabbed her Hermès manicure kit? You told me she pestered Don for weeks to buy a fractional share in a Gulfstream so she wouldn’t have to go through that again. She had a point—she doesn’t make for a very scary terrorist—but she came around because she understood the stakes involved, like everybody who works at AD.”

Melissa looked directly at Shirlee, and her voice softened. “But when health and safety aren’t at stake, it’s hard to justify summary dismissal.”

“I feel we’ve evolved to meet your concern,” Shirlee replied evenly. “After all, we could have terminated Simon long before we did. As you’ve seen, though, we’ve made sure that zero tolerance for nonsafety violations involves a lot of managerial discretion,” she added, sounding rather proud of the protocols she’d worked out.

“But the fact is,” Melissa continued with greater urgency, “even people engaging in behavior we know is wrong might have something meaningful to say in their own defense. They’re not schoolchildren. But zero tolerance means they can’t.”

Shirlee responded, this time a bit stiffly, that the company intervened only when the action was clearly prohibited, the harm actual or imminent, and the evidence unambiguous.

“But what is accomplished?” Melissa asked, plunging ahead. “Don’t you think Simon would have stopped spending so much time online if only we’d said something? We still don’t know what he was up to with that Ledecky fellow. He may have been in technical violation without hurting the company in any way. Sometimes I think that the zero-tolerance policy, when you get right down to it, is designed to punish people rather than to fix problems.”

“It’s not supposed to do either,” Shirlee said, by now feeling somewhat affronted. “The point is to prevent problems from occurring.”

“I don’t know,” Melissa replied. “The department’s been talking about making romance between a manager and a subordinate—or even the appearance of hanky-panky—a reason for automatic dismissal. But that kind of thing is almost impossible to prevent.” Besides, she added, reassigning one party or the other, and issuing both a stern reprimand, would solve the problem in most cases. “Yet Sallie and Myra and I worry we’ll look like we’re condoning really evil behavior unless we pounce.”

“I would hope that all of you would ‘pounce,’ as you put it, if there were a power imbalance and a manager engaged in conduct that was demeaning and inherently exploitative,” Shirlee said. “You would have no choice but to totally dissociate yourself and the company from it. Aside from all the harm to morale these kinds of abuses cause, you seem to ignore the damage a single incident can do to AD’s reputation. Have you already forgotten the trouble we had recruiting people after word got out about Doris Klemm’s husband? My philosophy is, ‘Dire threats require drastic solutions.’

“I’m tired of all this back and forth,” she finished. “I’ll see you tomorrow, 8 am sharp.”

Letting the Chips Fall

AD was making steady but slow progress toward fabricating Don’s pet microprocessor. Meanwhile, an innovative French cell phone manufacturer had signed a contract with Tetragram, AD’s toughest competitor, known to be working on a similar device. The researchers’ work had not been helped by Simon’s dismissal, which shocked Gottfried, their chief, above all. The academic milieu Gottfried came from was relaxed about things like Internet use—and certainly it had little reason to be worried about gunplay. He knew as well that only the most open exchange of ideas could lead to the solution of difficult research problems. Simon’s background in spectroscopy had turned out to be as valuable as he’d hoped, making Simon’s firing especially painful for Gottfried, who, with Don’s blessing, had recruited Simon and a few other especially promising scientists directly, bypassing Shirlee’s department, which handled only the paperwork.

When the Tetragram deal was announced, Applied Devices’ remaining R&D team members found themselves under such pressure that they took to downloading various proprietary databases to their laptops so that they could continue their calculations at home. And then the bulletin came: “The policy of Applied Devices, Inc., is one of zero tolerance for the downloading and removal from Applied Devices’ premises of all databases that are the intellectual property of Applied Devices.”

Should Applied Devices modify any part of its zero-tolerance program?

Janet Parker is the senior vice president of human resources for AmSouth Bank in Birmingham, Alabama, and the chair designate of the Society for Human Resource Management, based in Alexandria, Virginia.

Zero-tolerance policies definitely have a place in organizations. At AmSouth, we take that approach toward firearms on corporate property, toward harassment, and even toward inappropriate Internet use. Our goal is to provide a very safe working environment: It’s our responsibility to ensure that when our people come to work, they don’t have to worry about being harassed and don’t need to be fearful. It’s also our responsibility to give our managers clear guidelines, so that when they need to administer corrective action, they’ve got a framework in place to rely on.

Because most people feel more comfortable when they know what the guidelines are, we work with our legal department to set boundaries for acceptable behavior, and we let our employees know the consequences of ignoring them. But we intend them to be just guidelines. In the HBR Case Study, Shirlee North seems to be trying to make HR policies so comprehensive that Applied Devices’ managers won’t need to exercise judgment. That’s a mistake. It’s impossible to spell out every type of situation that might come up—human relations aren’t as cut-and-dried as that. I’ve known managers who aren’t comfortable working in gray areas or having difficult conversations, and they want HR to give them a script to follow. I don’t believe we should. Good managers, in my experience, prefer having some leeway.

Shirlee seems to be trying to make HR policies so comprehensive that Applied Devices’ managers won’t need to exercise judgment. That’s a mistake.

There will be times, of course, when leeway isn’t appropriate: If someone is creating a hostile work environment, the action we need to take is clear. If we learn that a person is sending offensive jokes or racial slurs over e-mail, we take a hard line. Downloading inappropriate pictures is a zero-tolerance offense as well. Wearing extremely casual attire is also an infraction in our conservative industry, and on rare occasions I’ve sent people home for doing that. Yet we do have much more important things to do than serve as the dress-code police.

Because of our responsibility to protect customers’ accounts, we have very sophisticated online-monitoring tools here. We watch activity, and we let our employees know that we’re watching. I am always amazed when people think, “Maybe they really aren’t,” and try to take advantage. We’ve got reports that register number of hits per person and length of time online. Sometimes I see a report and think, “My gosh, this person is spending an enormous amount of time on the Internet”; but then you need to drill down further. Maybe the employee has picked up a computer virus that multiplies her Internet use—we’ve had that happen. If you don’t take a closer look, you might make the wrong decision. Or maybe an employee is just spending too much time on the Fox News site or ordering online products. In that kind of situation, we might issue a written warning.

The important thing is not to make decisions in a vacuum. That consideration applies, too, to the decision to hire. In the Case, HR was circumvented when Simon Pemberton was brought on board. When HR has the chance to do background checks and drug screens and talk to people who know the individual, chances are better that the right decision will be made.

Although zero-tolerance policies can be appropriate, Applied Devices mishandled Simon’s termination. Shirlee monitored the amount of time that Simon spent online and found out whom he was exchanging e-mails with, but she didn’t give him an opportunity to tell his side of the story. AmSouth has in fact terminated employees who have clearly violated its policies—but our approach is to research the issues, give the employee an opportunity to respond, and then decide what to do.

Eugene Volokh (volokh@law.ucla.edu) is a professor at UCLA School of Law, where he specializes in, among other things, cyberspace law, intellectual property law, and workplace harassment law. He is also an academic affiliate of the international law firm of Mayer, Brown, Rowe & Maw, which is based in Chicago.

CEO Don Hardee thinks deviations from a defined standard of behavior shouldn’t be tolerated. Yet whether that’s right depends on three things: what the standard of behavior is, how clearly and accurately it can be defined, and what disciplinary action is meant by “shouldn’t be tolerated.”

Mandating the firing of people who threaten deadly violence makes sense. But mandating firing for all unauthorized e-mail, including a quick message to your spouse, does not. The abstract label “zero-tolerance policy” means little. What matters is the concrete standard embodied in the policy.

Zero-tolerance policies for genuinely serious misconduct can deter employees from doing things that hurt the company by making clear that their connections or supposed importance won’t protect them. Such policies constrain lower-level managers who might otherwise be too lax with subordinates they know and like. And if consistently enforced, zero-tolerance policies can dispel suspicions that some employees are cut slack while others are treated harshly—suspicions that can damage morale or even yield discrimination lawsuits.

But zero-tolerance policies can also create needless costs. Replacing an employee, especially a skilled professional, may cost tens of thousands of dollars in recruiters’ fees, training expenses, relocation costs, and productivity lost during the search. To get labor certification for Simon Pemberton, Applied Devices must have gone through the hassle of navigating the immigration laws and attesting to the U.S. Department of Labor that Simon’s skills have unique value. Now the company is throwing those skills away.

Overbroad policies can also deter useful behavior, not just harmful behavior. Many scientific discussions with outsiders help develop new ideas without revealing trade secrets. If, however, Simon’s coworkers assume he was fired because he discussed chemistry with Martin Ledecky, they’re likely to avoid having such potentially valuable conversations themselves and may thus fall behind competitors in knowledge and inventiveness. Plus, for a talented chemist attending a conference on the lookout for a new job, which company will be more appealing—one whose employees are excitedly discussing interesting science, or one whose employees are afraid to talk without clearance from management?

Let’s look closely at the policy sections that Simon might have violated:

First, if “unauthorized” e-mailing and Internet use means “not work-related,” then the company seems to be barring e-mails to one’s spouse, quick online yellow-pages searches, and so on. Honestly enforcing this policy would mean firing many workers.

Second, even if the policy applies only to those who spend more than eight hours online per week, there’s no need for it to cover after-hours use (which might have helped get Simon in trouble).

Third, goofing off a little, even on company time, may not have kept Simon from doing a good job, since he made up the lost time by working late. If that’s so, it would be hard to justify firing him for his minor transgression and then spending tens of thousands of dollars to replace him.

Finally, Simon’s firing may be partly based on his “indecipherable” e-mails to Martin, which called Simon’s loyalty and dedication into question, and not on any express zero-tolerance violation. Yet when something is called into question, the sensible thing is to find the answer, not to assume it. Some of AD’s engineers could doubtless have deciphered the e-mails. Why not ask them and thus learn whether Simon’s behavior is hurting the company or actually helping it?

When something is called into question, the sensible thing is to find the answer.

Don’s approach, we’re told, has greatly reduced the time it takes to fill open positions. But if Don cares about vacancy and replacement costs, he should recognize the expense of unnecessary firings. He should also recognize the need to focus concretely on which rules are right and which sanctions are sensible, rather than relying on generalities such as “zero tolerance.”

Jean Halloran is the senior vice president of human resources at Agilent Technologies, a scientific-measurement company based in Santa Clara, California.

Human resources policies have three dimensions to them: the way they’re written, the way they’re understood, and the way they’re practiced. These distinctions are particularly relevant at a decentralized company like Agilent, where general managers are expected to make their own decisions but to do so in a way that is consistent with companywide policies. To try to control all decisions from our Santa Clara headquarters would be foolish. We do, however, have very strong values and principles, and we spend a lot of time and other resources training managers and employees in how to apply them. We then count on Agilent general managers around the world to do just that.

While it’s important to recognize the dual objective of maintaining consistent treatment of our employees and complying with applicable legal requirements, no set of policies, no matter how thorough, can eliminate the need for good judgment—and that must be based on managers’ knowledge of the context for the actions under scrutiny. Policies serve as guidelines for decisions that people must make; they shouldn’t dictate every outcome. Consequently, I think it would be unwise in the extreme even to attempt to create something as inflexible as a zero-tolerance policy.

Moreover, Six Sigma is a highly disciplined approach for systematically eliminating defects in a process. Ultimate success would be perfection. Some HR processes—for instance, ones that depend on conformance to specs, such as the direct deposit of paychecks and accurate benefits administration—could be well served by Six Sigma. (After all, a company’s employees are HR customers, so those processes should be designed and improved to meet their needs.) In the areas of human motivation, creativity, and innovation, however, there are tools more useful than Six Sigma, such as management by objectives. Zero tolerance might work well in situations where winning is the result of operational excellence. But to enable people to innovate, companies need to encourage experimentation, allow the open flow of information, and tolerate failure while managing risk. The aim should be learning, not perfection.

Zero tolerance might work well in situations where winning is the result of operational excellence. But to enable people to innovate, companies need to tolerate failure.

The idea that you could write down formulaic policies that, if perfectly applied, would cause specific outcomes ignores the reality that employees are individuals. Further, those individuals are the most powerful source of innovation and business results. The free exchange of ideas, and even conflict over those ideas, promotes an innovation-rich work environment. Damping down people’s judgments would inhibit communication and collaboration. To think of a human being as a machine is both silly and counterproductive.

Agilent has for many years had what we call “standards of business conduct.” Every year, all managers must refamiliarize themselves with those standards and certify that they have done so. The standards include grounds for termination: theft, falsification of records, physical violence, showing up at work under the influence of drugs or alcohol, and so on. However, when there may be cause to fire someone, the one thing a company should never be is in a hurry. In many states in the U.S., Applied Devices’ actions would be considered illegal because they denied Simon Pemberton his right to tell his side of the story. For the two brown-suited security guards to come to Simon’s desk and march him out the door without explaining what the problem was reflects a severe and deeply distrustful environment.

The distrust that Shirlee North conveys with her overly obedient interpretation of her boss’s expectations is potentially far more harmful to the company’s reputation than a tendency to give people the benefit of the doubt would be. If AD had operated on the assumption that its employees were well-intentioned, as they are in most organizations, it would have developed policies designed to encourage high performance, not to catch employees behaving badly.

Michael G. Cherkasky is the president and CEO of Marsh & McLennan, a global professional-services firm based in New York. Previously, he was the CEO of subsidiary Marsh, a risk management and insurance services firm; the CEO of subsidiary Kroll, a global risk consulting company; and the chief of the Investigations Division of the New York County District Attorney’s Office.

I have a background in the U.S. criminal-justice system, and I was never in favor of determinative sentencing, which prevents judges from weighing mitigating or aggravating factors in a convicted person’s history. A company may have the legitimate goal of declaring some forms of behavior unacceptable, but its approach to punishment should always be flexible. The solution shouldn’t invariably be termination.

For example, at a company with a zero-tolerance policy toward violence, a manager may scream at a person who is lower in the organization. But is it clear that his behavior is threatening and thus a violation? In his case, counseling might be a better course than firing.

In a system where the three-time offender is sent to prison for 25 years to life, even if it’s for stealing a candy bar, the rules, by themselves, can never be fair enough and often result in harsh and arbitrary punishment. We are all aware of the sobering effect of a good public hanging. However, although it makes sense to declare some forms of behavior unacceptable, zero-tolerance policies often become a crutch for lazy managers who do not know how to run a business effectively while addressing problems as they arise.

The rules, by themselves, can never be fair enough and often result in harsh and arbitrary punishment.

Take a manager who institutes a zero-hiring policy because he has been ordered to control costs: Yes, costs will decline, at least for a while, but probably at the expense of activities that generate revenue and drive growth.

Instead of zero tolerance, companies need managers who care more about the team—and building a culture within it—than they do about the rules. A perfect example is the Los Angeles Police Department, where, several years ago, officers were found to be using force excessively. As its court-appointed independent monitor, I have found that transforming the department from one that resembled an occupation army to one that embraces community policing has involved much more than imposing a clear set of rules. The officers must believe that they are part of the community they protect. By the same token, managers must be, and must recognize themselves as being, part of the corporate culture.

In short, simplicity, clarity, and purity can’t be the overriding goals of a system of standards and punishments. I’m not saying that a company as large and diverse as GE, for example, shouldn’t be applying Six Sigma and other formulas. But even in manufacturing, every product has allowable amounts of adulteration. That’s because as you approach perfection, the incremental cost of inching closer becomes too great. As Applied Devices moves toward zero tolerance, the cost of stifling self-reliance, motivation, and creativity becomes unacceptable.

Even so, if people go too far in departing from the guidelines, their bad practices tend to create a precedent, which then becomes the new rule. Despite this danger, a company mustn’t structure things on the assumption that it has bad managers or, for that matter, geniuses in charge.

I have worked as a consultant with numerous companies that employ zero-tolerance policies. I can understand the appeal. These organizations are acutely aware of the fact that there is nothing more important than their reputations—and that a small mistake can threaten the entire brand. As a result, they are tempted to resort to draconian codes, which, for that reason, managers are hesitant to enforce. And so, once the passion for a particular practice has cooled and no one is watching, that practice is shelved as burdensome, harsh, and unworkable. Meanwhile, the culture hasn’t changed, and the company has suffered a long-term competitive disadvantage.

A version of this article appeared in the November 2006 issue of Harvard Business Review.

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